Does the Height Act Actually Cost D.C. Billions of Dollars?

Since 1910, building heights in Washington, D.C. have been limited by Congress, and the subject of contentious -- but not, until now, substantive -- debate in the capital. At the behest of D.C. Delegate Eleanor Holmes Norton and California Representative Darrell Issa, Congress has announced it will spend 10 months studying the possibility of altering D.C.'s Height Act.

As is often the case in urban design, there can be no trials or simulations, and parallels with other cities are in short supply. (That exceptionalism is one reason preservationists value the Height Act.) The debate is confined to the hypothetical, with much speculation on both sides.

But one figure that has been cited lately -- that the Height Act costs D.C. over a billion dollars each year -- stands out as misleading.

Clearly, regulation pushes building values (and rents) higher in D.C., as it does everywhere. But some opponents have been over-stating their case. In a recent post for The Economist, Ryan Avent notes that D.C. had a "shadow tax" figure of 22 percent back in 1998. Avent goes on to write that,

The average commercial rent in downtown Washington is $94 per square foot. Using the 1998 shadow-tax figure, we can guess that perhaps $21 of that rental cost is attributable to regulatory restrictions, which means that the total annual regulatory cost in downtown alone is around $1.4 billion: well above even implausibly high guesstimates of the aesthetic benefits of the height limit.

Matt Yglesias – a proponent of an all-out repeal (he wrote the book on high rents) – takes up the thread, calculating the cost of those rents to the city:

...You could allow for skyscrapers in the central business district, impose a staggering 22 percent tax on office rents, eliminate the D.C. sales tax, and still come out with cheaper after-tax office rents and more tax revenue than we have today.

But even if rents instantly dropped in the absence of land use regulation, which they wouldn't, this analysis isn't quite right. The 22 percent figure, from Edward Glaeser's 2005 paper on housing markets, is a 1998 "estimate of the regulatory tax as a percentage of average house value" -- not office rents. The two may be related, but they shouldn't be conflated.

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What's more, the figure is supposed to include all regulations and restrictions that would increase the value of existing built property, of which, in a highly regulated city, the Height Act is only one. (Another is, say, the existence of Rock Creek Park.)

In other words, D.C. combines a relatively strict zoning code with arguably the country’s most stringent building requirement, and its residential "shadow tax" (in ’98) was still half that of San Jose. Even if 22 percent were the shadow tax figure for the office rental market, it’s unclear what portion is due to the Height Limit and what's due to the hundreds of other building regulations.

No doubt the Height Act is driving up the cost of life in D.C. But by over a billion dollars?